Bassett Furniture Industries Inc. announced its results of operations for its fiscal quarter ended February 24, 2007.
Sales for the first quarter of 2007 were $73.4 million down 15% from the $86.5 million reported in the first quarter of 2006. As previously announced, this shortfall is primarily due to continued soft furniture retail conditions which have impacted both retail sales and wholesale shipments. This decrease was also partially due to the sale of the Company’s Weiman operation at the end of April 2006. The Company reported a net loss of $(4.2) million or $(0.35) per share as compared to net income of $2.2 million or $0.18 per share in the first quarter of 2006. Also as previously announced, the net loss for the first quarter of 2007 included a $3.6 million non-cash pre-tax or $0.19 per share after-tax charge related to closing a wood manufacturing plant in Bassett, Va.
Excluding the effects of the non-cash asset impairment charge, the Company’s net loss would have been $(2.0) million. A reconciliation of net income and earnings per share calculations has been set forth below.
As noted above, the Company announced on March 5, 2007 plans to cease operations at its wood manufacturing facility in Bassett.
The closure of the 323,000 square foot facility is planned to be completed during the third quarter of 2007 and will affect approximately 280 employees or 15 percent of the Company’s workforce. During the last few years, like most of the U.S. furniture industry, Bassett has experienced a shift in demand from domestically produced to imported wood furniture. With the current business levels, it was no longer feasible to continue to operate the large manufacturing facility even with the efficiency improvements and investments made over the last two years. The Company plans to source the majority of the products currently produced at this facility from overseas suppliers, to continue to produce certain custom bedroom products domestically and to discontinue production of slower selling items. The Company also expects to record a charge of approximately $1.0 million in the second quarter of 2007 for severance benefits associated with the plant closure.
The Bassett Furniture retail store program had 133 stores (106 licensed and 27 Company-owned) in operation at the end of the first quarter. No stores were opened during the quarter with one licensee store being closed. The Company expects that four or five new stores will be opened over the remainder of the year.
“This was an extremely difficult quarter for the Company both in terms of our business levels and the announcement made earlier this month related to the closing of our facility in Bassett,” said Robert H. Spilman Jr., president and chief executive officer. “While we are reducing our cost structure to reflect the pace of incoming orders, the Company continues to pursue mid and long-term growth initiatives on a number of fronts. The reception of our dealers to new sharper value products at the High Point Market last week was very positive. Components of our store presentation improvement program were on display and favorably embraced by our licensees. The debut of our new store prototype this fall and new embellishments to our consumer catalog highlight continued efforts to strengthen store performance.”
Wholesale Segment: Net sales for our wholesale segment were $62.3 million for the first quarter of 2007, 18% below the $76.3 million sales level attained in the first quarter of 2006. For the first quarter of 2007, approximately 74% of wholesale shipments were to Bassett stores compared to 70% in the first quarter of 2006.
Additionally, approximately 47% of wholesale shipments in the quarter were imported products as compared to 44% in 2006. The wholesale segment generated an operating loss of $(1.2) million in the first quarter of 2007 as compared to $3.7 million of operating income in 2006. The $4.9 million decrease in operating income was primarily attributable to the reduction in sales volume. The Company also incurred increased selling, general and administrative expenses associated with the development and distribution of the spring catalog, the development of the new store prototype concept, additional television advertising and the addition of new retail management personnel.
With the continued difficult furniture retail environment resulting in the significant drop in the wholesale volume, the Company will continue to assess and adjust its wholesale cost structure to match the associated demand. The Company expects that the closure of the Bassett plant will result in annual improvements beginning in 2008 to operating income of $3.0 to $4.0 million per year after factoring in expected sales reductions.
Retail Segment: Bassett’s 27 corporate stores continued to experience relatively soft conditions at retail with sales of $21.2 million in the first quarter of 2007 as compared to $21.9 million in 2006. The retail segment incurred an operating loss of $(2.4) million for the quarter compared to an operating loss of $(2.2) million in 2006. The Company is beginning to see improvement from stabilizing the operations at these stores and has seen moderately positive trends in sales and margins during February and March of 2007 as compared to 2006.
Balance Sheet and Cash Flow: Inventories decreased $3.8 million due to lower business levels and improved inventory management. Accounts receivable increased $4.3 million during the first quarter of 2007, due to the timing of shipments late in the quarter coupled with the slower pace of collections from certain store licensees related in part to the overall retail environment. The Company believes it has adequate reserves for bad debts as it continues to aggressively work with its dealers to help ensure their long-term profitability and, in turn, improved cash collections for the Company.
The Company used $3.8 million of cash in operations for the first quarter of 2007 and paid $2.4 million in regular quarterly dividends. These cash uses were primarily funded through sales of investments approximating $4.0 million, $2.8 million of dividends received from an affiliate and a $1.0 million increase in the revolving credit facility. With $5.0 million outstanding, the $40 million revolving credit facility matures November 30, 2007 and is presented as a current liability in the consolidated balance sheet. The Company expects to renew the facility or have another facility in place prior to the maturity date.
Board and annual meetings formerly held at the end of February will be held on April 19, 2007.
About Bassett Furniture Industries, Inc.
Bassett Furniture Industries, Inc., is a leading manufacturer and marketer of high quality, mid-priced home furnishings. With more than 130 Bassett Furniture stores, Bassett has leveraged its strong brand name in furniture into a growing network of corporate and licensed stores that focus on providing consumers with a friendly environment for buying furniture and accessories. The most significant growth vehicle for Bassett continues to be the Company’s dedicated retail store program. Bassett’s retail strategy encompasses affordable custom-built furniture that is ready for delivery in the home within 30 days. The stores also feature the latest on-trend furniture styles, more than 1,000 upholstery fabrics, free in-home design visits, and coordinated decorating accessories. For more information, visit the Company’s website at bassettfurniture.com. (BSET-E)
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